The Government yesterday unveiled its long-awaited state bank initiative, which is supported by German funds as well as other investments from Europe.
Michael Noonan, the finance minister, said credit was the “lifeblood” for businesses and the new lending arrangements would be in place by the end of the year.
The Strategic Banking Corporation of Ireland will source funds externally and lend them to SMEs through loans handed out by state-owned banks.
The cost of the loans for businesses will be lower than usual and banks will have to pass on amounts under strict rules, it was announced.
Mr Noonan said SMEs would be entitled to repayment holidays for up to a year-and-a-half and that amounts could be repaid over ten years.
The bank fund is being financed by German bank KfW, following negotiations between Taoiseach Enda Kenny and German chancellor Angela Merkel.
Funds will also be provided by the European Investment Bank and by pension funds here from the strategic investment fund.
France had also taken an interest in investing in Ireland and talks were ongoing, Mr Noonan said.
Up to €4bn would be made available to businesses over a five-year period, with €800m by the end of this year, he announced.
Legislation for the lending initiative will be passed by the summer, ministers said.
“The terms are tailored to suit the needs of an SME,” said Mr Noonan.
Chambers Ireland welcomed the lending initiative but also said the new bank did not address the need for short-term funding for SMEs.
“Furthermore, the vague timeline, whereby Minister Noonan hopes that the bank will be operational by the end of the year, is disappointing,” said chief executive Ian Talbot.
The Irish Small and Medium Enterprises Association said the fund must be managed properly.
CEO Mark Fielding said: “While we welcome this long-awaited initiative, the fear among credit-squeezed SMEs is that the bailed-out banks will revert to form and divert these loan funds to ‘safer’ large businesses.”
Employers group IBEC said it hoped the new bank would facilitate low-cost loans.
For the latest election news and analysis visit our special Election 2014 section.